22/10/14 – Iron ore flood leaves little wriggle room for minnow Atlas

SYDNEY/MELBOURNE, Oct 21 (Reuters) – A flood of low-cost iron ore is driving tiny Australian miner Atlas Iron to its break-even point, underscoring the pain inflicted by a ramp-up in output by mega-producers Rio Tinto and BHP Billiton.

Atlas, which raced into production half a decade ago when iron ore prices were booming on the back of a supply shortage, is high on analysts’ lists as “collateral damage”, as BHP and Rio Tinto chase a larger slice of the 1.3-billion-tonne-a-year global market.

Atlas is expected to confirm its fiscal 2015 production guidance of 12.2-12.8 million tonnes on Thursday, about as much as BHP and Rio together churn out in a week. But the problem is costs – more than double those of its bigger rivals.

UBS last week downgraded Atlas to “sell” from “neutral”.

Atlas chief Executive Ken Brinsden has promised to attack costs, which at a targeted $64-$68 per wet metric tonne in fiscal 2015 are among the highest in Australia’s Pilbara region.

Atlas sold its ore in the half-year to June 30 for $86.29 a tonne, but this half-year’s average is set to be lower, given a 13 percent drop in spot prices .IO62-CNI=SI since July 1, while Atlas ore is also discounted because of its lower grade.

An Atlas spokesman said the company’s cost position would be updated in Thursday’s September quarter operations report.

“Atlas has to make some tough decisions,” said James Wilson, a mining analyst for Morgans Financial. “BHP and Rio want their ore to be the most competitive in the world, which as a result could push lesser competitors like Atlas off the cliff.”

In June, the 1.7 million-tonnes-per-year Cairn Hill mine, started in 2010 when iron ore fetched twice today’s price, was shut after costs of $104 a tonne overran selling prices. Other small miners once hoping to make inroads into the seaborne-traded market but now struggling include Pluton Resources, Sherwin Iron Ltd

Source – Reuters.com